Zak Mir in the Iron Lady & the gold miners – again!

Since being a kid in the early 70’s, politics has been nearly as much of an interest of mine as the financial markets are – you can tell what a bundle of laughs I was in the playground eh?! The aftermath of Baroness Thatcher’s death, although perhaps regarded as “imminent” for quite some time, could still be classed as a surprise as you could never quite believe that no less a character than the “Iron Lady” would finally pass on – death inevitably catches upto us all…

As for the open insults on the social media front from certain quarters – this is yet another negative development as far as the decline of respect for others. But at least, in terms of the economics of Thatcherism, we are reminded in the middle of the Financial Crisis what the good and bad points are of taking power away from the state and passing it back to the individual. The boom and bust, the bonuses and the zombie banks… In fact, we have the contrast between the Unions / Socialism of the 1970s and the Corporations of the 2010s. Neither look too appealing to me. All that is left is that a great leader makes a country look great – even if it is not.  If you agree with this concept, booting out Thatcher in 1990 was almost as foolish as not re-electing Churchill in 1945 – even if both had their issues at those times.

On to matters more directly related to the financial markets, and I confess that one of the more frustrating aspects of the great 2013 rally for equities has been the M&A speculation that has resulted in an actual takeover.

A personal favourite of mine which has been in the frame on and off in recent weeks, is Cairn Energy (CNE). The story as delivered by the financial press is that the Greenland focused explorer could be the target of its Indian offshoot. Yes, this does not exactly sound solid, but the charting position does seem to make the stock a buy  – with or without a takeover. The reason for the optimism stems from the latest unfilled gap to the upside. This not only suggests that bears here have been caught on the hop, but also with the gap melting through the blue 50 day moving average now at 283p, we have what is effectively a double buy signal. The view is therefore that while there is no end of day close back below the 50 day line, the upside here could be as great as the June 2012 price channel top of 325p as soon as the end of next month. Admittedly, there have been a few false starts here  – in the first three months of this year. However, after the gap and the initial April bear trap just below 270p, the way now should be clear to the upside.

In recent weeks all that you would see as far as the FTSE 350 laggards board day in day out were the embattled mining stocks. But at least so far this week the big percentage winners have tended to be the likes of Kazakhmys (KAZ), African Barrick Gold (ABG) and as we see in the chart below, Petropavlovsk (POG).

My “objective” guess here based on the floor of the falling trend channel from last year was that the stock would fall to around 205p and that there was little point even attempting to catch this particular falling knife until this level was hit. In fact, there was an overshoot to as low as 192p, despite the extended bullish RSI divergence via a falling support line from July in the oscillator window. What can be said at this stage is that even though bottom fishing may now be indicated, in the absence of even an end of day close back above the 10 day moving average at 208p this is still a very high risk situation that most traders could be forgiven for wishing to avoid.